Wilson v Porada; The Estate of Peter Wolfgang Porada, late of Pericoe

Analysis of the Parties' Costs Submissions

1. It is convenient to state the administrator's submissions and then analyse them by reference to the plaintiff's submissions in reply and by reference to the limited additional evidence which was adduced on the cost hearing.

The Administrator's Costs

1. The parties are not in dispute that the administrator's costs of the proceedings should be paid out of the estate. The administrator says they should be paid from the estate on the indemnity basis. But Ms Wilson says they should be paid out of the estate only on the ordinary basis, although she merely highlights this issue and says it is a matter for the Court. But the issue having been raised, it should be analysed. The administrator's argument is the more persuasive on this issue for the following reasons.
2. Ms Wilson acknowledges that the general principle is that trustees and executors are ordinarily entitled to an indemnity against all proper costs, charges and expenses incidental to the execution of a trust, including legal costs: National Trustees Executors & Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268, Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.25 (1) and Trustee Act 1925 s 59(4).
3. Ms Wilson argues that that the general rule is subject to exceptions, including exceptions expressed within UCPR, r 42.25, that apply where were a trustee has in substance acted for his own benefit rather than for the benefit of the fund. Ms Wilson argues that Mr Manfred Porada, the administrator, comes within such an exception. She says he did nothing to apply for an interim grant of administration for a two year period from the deceased's death up to the date of hearing and did not act as a trustee or executor, or on behalf of the estate, and that he really only acted as a potential beneficiary under the intestacy provisions of the Succession Act 2006 (NSW) ("Succession Act"), to protect his own position as a beneficiary, as distinct from acting for the protection of the estate. She contends that prior to the grant of administration to the administrator that Pericoe Farm remained untended and that no attempt was made to negotiate with the co-owner to deal with the deceased's interest in the property.
4. For all these reasons the plaintiff says that the administrator's costs should only be assessed and paid from the estate on the ordinary basis. But the plaintiff says that she ultimately has no personal interest in the basis on which the administrator's costs are met out of the estate and merely draws these arguments to the court's attention.
5. Ms Wilson is right: that she has no real interest in the basis upon which the administrator's costs are paid out of the estate, or notional estate, because even if they are paid out of the estate, or notional estate, on the indemnity basis there are still sufficient funds available to meet Ms Wilson's $75,000 legacy and her costs on the basis that will be unconditionally ordered by this judgment if there is no issue about the designation of the Superannuation Fund as notional estate.
6. Ms Wilson's argument is based in part upon misconceptions. First, the only contest here is about the administrator's costs of the proceedings, not the costs of the administrator in relation to the overall administration of the estate to date. What was or was not done by the administrator to progress the administration of the estate is a matter that can be assessed if and when the administrator claims commission for his administration of the estate. It is not a matter relevant to the awarding of the administrator's costs of the proceedings.
7. Secondly, the administrator was acting in the interest of the estate by seeking to have an administrator appointed who most properly represented the estate and would administer it according to law. He was entitled to seek that so that such a person was appointed in the best interests of the estate. Whilst there was some self-interest involved on his part in opposing the plaintiff's claim to be the de facto partner of the deceased, once the Court found that Ms Wilson was not the de facto partner of the deceased she was not an appropriate administrator of the estate. Someone other than her, such as Mr Manfred Porada, needed to apply for administration. Some such application was necessary for the estate to be administered. And his application was not entirely self-interested, because his administration means that a number of other persons other than himself would benefit from his administration of the estate.
8. But even these proposed costs orders in favour of the administrator come with a caveat. As will be explained below with respect to the costs orders made for Ms Wilson: they assume that the claimed notional estate is available so the pool of assets satisfy costs and the legacy is of the order of $760,000. Unless that assumption is proven to the Court to be correct, these orders will remain conditional and may have to be revisited.

Costs orders in the Administration and Family Provision Proceedings

1. The administrator and the plaintiff both acknowledged the difficulty in separating out costs in the administration proceedings and the family provision proceedings. Although the administrator contests Ms Wilson's claim to costs in both proceedings he accepts the principle that a single costs order should be made. He submits in answer that each party should bear its own costs of all proceedings, so that a single costs order is made, avoiding the need to have separate costs assessment for the costs of each proceeding.
2. The parties' approach to this is reasonable. The Court will take same approach, making a single costs order in respect of each party in both proceedings. Any other approach would involve the parties in unnecessary additional costs during the costs assessment in attempting to quantify the costs attributable to each set of proceedings.

Should each party bear his or her own costs?

1. The administrator argues that the overall result should be that each party should bear its own costs of all the proceedings.
2. The administrator argues as follows. In the administration proceedings, costs should follow the event in accordance with the ordinary rule. Here there is no basis to displace the application of the ordinary rule. The administrator was successful and should have his costs. As Ms Wilson was unsuccessful, she should have to pay the administrator's costs of the administration proceedings. Moreover, the flexibility as to payment of costs of all parties out of the estate conferred under Succession Act, s 99 is not available to Ms Wilson to alter the costs outcome that must follow in the administration proceedings.
3. The administrator refers to the cases stating the principle that a party who enjoys substantial success on a dominant or severable cause of action or issue may be entitled to his costs on that cause of action or issue, even if the other party is successful in relation to the overall outcome of the proceedings: Bostik Australia Pty Ltd v Liddiard (No. 2) NSWCA 304 at [38] and James v Surf Road Nominees Pty Ltd (No. 2) [2005] NSWCA 296 at [34].
4. And in the family provision proceedings the administrator submits that he was successful on what can be considered as the "dominant" issue in the proceedings, namely whether Ms Wilson was a de facto spouse of the deceased. The administrator submits that the majority of the evidence filed in relation to all proceedings was filed in relation to the de facto claim. The administrator submits that this was both the threshold issue upon which the family provision claim hinged and the key to Ms Wilson's success or failure in the administration proceedings.
5. The administrator's argument proceeds: that Ms Wilson's claim to be the deceased's de facto partner was untrue, inconsistent and lacking in credibility. The administrator's submissions detailed the Court's many findings in the principal judgment in which the Court does not accept many parts of Ms Wilson's narrative and emphasises that many of the Court's findings are based upon matters upon which the administrator was prepared to make concessions, but became common ground: including, a relationship between the deceased and Ms Wilson between 2004 and 2009, an engagement in approximately 2007, a temporary period of sharing a household, the good relationship between the deceased and Ms Wilson's children, Ms Wilson organising a 50th birthday party for the deceased, Ms Wilson and her children being affected by the death of the deceased, and Ms Wilson's poor financial circumstances.
6. But notwithstanding that the administrator did make concessions, the case was nevertheless fought by the administrator on the basis that Ms Wilson could not succeed in her family provision case because she did not surmount the thresholds of dependency and household membership required to qualify her for eligibility under Succession Act, s 57(e).
7. The administrator chose to emphasise the failure of Ms Wilson's claim to a de facto relationship with the deceased. But the administrator's submissions fail to address the fact that once the concessions were made that there was a past relationship between Ms Wilson and the deceased, there was an open contest in the proceedings about eligibility under Succession Act, s 57(e) and the question of factors warranting.
8. And on those matters Mr Coleman SC's submissions are persuasive. It was necessary for the plaintiff to establish her s 57(e) and factors warranting case to go into the whole history of her relationship with the deceased, covering much the same factual matters that she relied upon to assert her de facto relationship with the deceased.
9. It is true to say in my view, as Mr Coleman SC submits, that even if the administration proceedings had not been in contest that this case is unlikely to have been appreciably shorter.
10. Ms Wilson's failure in the family provision proceedings to establish her de facto relationship was not so dominant or separate an issue in the proceedings that it warrants any reduction in Ms Wilson's costs on account of that failure. The substantial overlap in the factual contest between the principal ground of eligibility as a de facto spouse under Succession Act, s 57(b) and the ground on which she succeeded under s 57(e) shows that the lack of dominance of the issue upon which she failed.
11. The plaintiff's costs should not be apportioned to reflect her failure in the administration proceedings and her failure to establish Succession Act, s 57(b) eligibility. In short her failure on those issues did not put the administrator to substantial extra costs.

The Jurisdiction to Cap Costs in Family Provision Cases

1. The Court has jurisdiction to cap costs in family provision cases. The jurisdiction is derived from a number of different sources.
2. Longstanding practice of the Equity Division is the first source. Especially in small estates some special justification would be needed to warrant an order for costs beyond a particular amount (of $35,000 in 2004): Moore v Moore [2004] NSWSC 587, per Young CJ in Eq (as his Honour then was). In Deves v Porter [2003] NSWSC 878 Campbell J considered that a useful rule in similar proceedings, that the costs awarded should not exceed the amount recovered. But in Van Zonneveld v Seaton (No. 2) [2005] NSWSC 175 Campbell J also recognised that his useful rule needed to be applied with caution "having regard to the circumstances of the individual case": see also Parker v Parker [2006] NSWSC 473, per Brereton J.
3. As Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [21] - [25], a feature of family provision cases is that they are concerned with the proper distribution of a fixed pool of assets such that the Court is willing to consider the overall justice of the case: Singer v Berghouse (No 2) (1994) 181 CLR 201; (1993) 114 ALR 521 at pp 521-2, per Gaudron J. So when considering the "overall justice of the case" it may at times be appropriate to make no order as to costs in favour of a successful party or to cap those costs, particularly where the estate is not large.
4. Equity's longstanding practices are also reflected in the Supreme Court of NSW, Practice Note SC EQ 7 - Supreme Court - Family Provision in relation to family provision matters, in which the Court gives a standing warning to all parties involved in such proceedings that "orders may be made capping the costs that may be recovered by a party" where the net distributable estate is less than $500,000. This is such a case.
5. Another source of jurisdiction is UCPR, r 42.4, which provides for the Court's power to order maximum costs. The Court of Appeal has upheld such orders in family provision cases: Nudd v Mannix [2009] NSWCA 327. As Palmer J explained in respect of an earlier iteration of this rule, its purpose is to act as a "brake on intemperate and disproportionately expensive conduct of proceedings": Re Sherborne Estate (No 2); Vanvalen v Neaves (2005) 65 NSWLR 268.
6. Finally, Civil Procedure Act 2005 (NSW), s 60 provides a further statutory basis for ensuring that costs of proceedings are "proportionate to the importance and complexity of the subject matter in dispute". In this respect the Victorian Court of Appeal has emphasised that where costs in family provision cases have been incurred unreasonably they may have to be borne personally: Forsyth v Sinclair (No 2) (2010) 28 VR 635 at [27].
7. In my view there is ample jurisdiction here to make costs capping orders.
8. These various sources are wide enough to confer power on the Court to cap Ms Wilson's costs, even to the extent they cover the administration proceedings. But as has been found elsewhere in these reasons, the administration proceedings added little extra time to the overall hearing.

The Quantum of Costs

1. The costs expended on both sides of these proceedings are substantial and not proportionate to the sums of money in issue between the parties. The administrator's costs affidavit (affidavit of Esther Colson of 16 August 2017) indicates that the defendant's total costs and disbursements calculated on an indemnity basis from the commencement of the matter up until the last day of the final hearing were $202,646.72. Ms Colson estimates on behalf of the administrator that further costs and disbursements of $50,000 would be required to be expended up until the conclusion of the costs hearing. Thus the total amount of costs and disbursements incurred by the administrator on an indemnity basis is expected to be $252,646.72.
2. On Ms Wilson's side the costs are equally high. Her total estimated costs to the end of the costs hearing are of the order of $235,598.48 inclusive of GST. Of the past costs and disbursements incurred by Ms Wilson, some $216,298.48 inclusive of GST remains unpaid.
3. The costs burden on both sides of this case is much higher than is to be expected from an ordinary family provision case. A standard family provision proceeding conducted over a two day period with a handful of witnesses on each side could incur costs of the order of $70,000 to $80,000. A more complex case going four days may incur costs of the order of $120,000 to $140,000. But even allowing for the numbers of witnesses in this case and the fact that many of them came from the far South Coast of the state, costs of the solicitors concerned are between $235,000 and $252,000 are very high and difficult to justify in circumstances where the amount in issue, including notional estate, was only ever the sum of $760,000 (being the deceased's total actual estate $391,551 and notional estate $411,000), less liabilities of $42,039.16 (see the principal judgment at [196]).
4. The incurring of such costs in this case is more than unfortunate. Hallen J clearly warned the parties in early directions hearings of the need to mediate these proceedings and reduce the expenditure on legal costs. But the case has been a very hard fought one. Ms Wilson made clear that she believed she was the de facto partner of the deceased and was entitled to the whole of the notional estate. The administrator sought to use Ms Wilson's offer of compromise of $450,000 against her. The offer of compromise only proves that her settlement outlook was unrealistic. On the other hand there is no evidence of any offer of compromise from the administrators in which any sum in excess of $75,000 was offered to Ms Wilson. Both parties' positions remained entrenched.
5. The Court has read the correspondence between the solicitors to these proceedings both in the main hearing and in the costs hearing. The position taken in the correspondence was unnecessarily aggressive on both sides. The lack of objectivity in the correspondence in my view, has contributed to the overall burden of costs. This aggression is illustrated by the subpoena that the administrators served on Ms Clarke, counsel for Ms Wilson amidst accusation and counter-accusation that Ms Wilson's solicitors were not responding to correspondence. The Court cannot decide the rights and wrongs of these disputes. But this is a classic case where the parties could, through their counsel, have taken advantage of the Court's willingness to give directions to reduce issues and disputes and require parties to produce documents and make admissions about the real questions in dispute.
6. What is to be done? As the previous section of these reasons made clear, the Court has power to cap Ms Wilson's claim for costs and proposes to do so. Mr Coleman SC indicated that Ms Wilson was prepared to accept a costs cap of $150,000 (which the Court assumes is inclusive of GST). The administrator did not contest the Court's power to cap costs. The Court will make a costs capping order.
7. The Court is not imposing a costs capping order on the administrator's costs. That quantum of costs is a matter for assessment on taxation between the administrator and the administrator's solicitors (if requested by the administrator). But the observations made in this judgment, together with the costs capping order made in respect of Ms Wilson may assist the estate to finalise an appropriate burden of costs with the estate's own solicitors without the need for a costs assessment between them.

What Costs Capping Order is Appropriate?

1. The authorities considered above suggest a need for proportionality of three kinds: proportionality between the costs awarded and the legacy ordered to the plaintiff; proportionality between the costs incurred and the size of the total estate and notional estate; and proportionality between costs incurred in this reasonably unremarkable family provision litigation and other family provision litigation of a similar type. The various authorities that support the requirement to assess proportionality on each of those bases is set out in the previous section of these reasons. Here, the legacy is $75,000, the total estate and notional estate $760,000 and similar litigation over a four day period would be in the order of $120,000 to $140,000. Taking into account - and making one important assumption about notional estate - these factors in my view the plaintiff's costs should be capped at $100,000, inclusive of GST.
2. The assumption made in the above assessment is that the claimed notional estate represented by the Superannuation Fund is available to be designated as notional estate. But until the steps identified in the next section are taken this assumption cannot be verified. If there is a contest about the notional estate, the quantum of these orders (which are formulated to give the parties some basis for certainty) will be open for further consideration.

Designation of the Superannuation Fund as Notional Estate

1. The plaintiff asks for the legacy awarded to her and her costs to be paid from the notional estate. This submission is grounded upon practical considerations. Pericoe Farm is half owned by a third party. It is not clear whether the co-owner, Mr Ferguson is prepared to sell. The administrator has indicated that a sale would probably be necessary. If the co-owner resists sale, a Conveyancing Act, s 66G application will be necessary, a matter that may take some considerable time given that the Pericoe Farm is in a very isolated area.
2. Ms Wilson's financial circumstances are difficult and further delay will cause her hardship. It is also desirable that her creditor, Ms Karen Gray, be paid sooner rather than later.
3. But the parties have overlooked some important directions that the Court made earlier in these proceedings relevant to the claim to designate the Superannuation Fund as notional estate. The claim overlooks the other potential claimants to the Superannuation Fund.
4. At the pre-trial directions hearing on 13 March 2017, the Court raised with the parties the need for the parties to notify any potential claimants to the approximate sum of $411,000 in the Superannuation Fund which the parties seek to have designated as notional estate. The Court discovered when giving pre-trial directions that these persons had not been notified of these proceedings. The Court therefore made a direction for the plaintiff and the defendant to co-operate in the sending of a letter to the deceased's nieces and nephews, Zeneta Latter, Anthony Latter, Yelena Latter and the administrator of the estate of the deceased's ex-wife, Claire Ferguson (deceased) who each held respectively a 25% share of a nomination that the deceased made as to who was to benefit from the fund in the event of his death. The purpose of the Court's direction was to notify them of these proceedings and to give notice prior to the first day of the trial whether or not they wished to contest in these proceedings a determination that was thought to have been made by the trustee of the Superannuation Fund, dated 24 April 2015, to the effect that the deceased's direction in their favour about the disposition of his interest in the Superannuation Fund upon his death is non-binding.
5. On the first day of trial, counsel for the administrator updated the Court and indicated that, following further investigation by the parties, it had been ascertained that a determination had not been made by the trustee of the Superannuation Fund that the deceased's direction was non-binding. The Court was informed that the relevant persons identified in the orders of 13 March had been notified of these proceedings in accordance with the Court's orders, and they had been invited to attend court for the trial. The relevant correspondence was tendered and was marked Exhibit 1. There was no contest that those four persons had been listed on a nomination form which was completed by the deceased, but completed over three years before the deceased died. The parties before the Court agreed this made the nomination non-binding in character, so the fund can be paid to the estate. But that agreement does not bind the other four potential beneficiaries of the Superannuation Fund, who must now be given an opportunity to be heard, before any part of the Superannuation Fund is designated as notional estate.
6. On 31 March 2017, Mr Jack Herrald, solicitor for Mr Latter, Ms Zeneta Latter (now Fletcher) and Ms Latter sent a letter to my Associate which confirmed that his clients had only become aware of their nomination as beneficiaries by the deceased following the Court's 13 March orders. In the letter, Mr Herrald said: "…I would like it noted that unless and until the Superannuation Trustee makes a determination that the deceased's superannuation benefits, either in whole or in part are to be paid to the personal legal representative of the deceased, that such superannuation benefits are not an asset of the deceased estate."
7. It is reasonably clear that at the time of the trial the trustee of the Superannuation Fund had not made such a determination. The Court will consider any further submissions from these claimants upon the deceased's superannuation before any designation of notional estate for costs occurs. They have not been in contact with the administration since March 2017. Property may be designated as notional estate if the estate if insufficient to meet costs orders: Kelly v Deluchi [2012] NSWSC 841 at [140].
8. The Court will require the administrator to give notice to these four claimants of the outcome of these proceedings and this judgment. The parties will have leave to re-list the matter at a convenient time by making arrangements with my Associate.

A Gross Sum Costs Order - Civil Procedure Act, s 98(4)(c)

1. In the course of submissions the Court raised with the parties whether they might wish to take advantage of the provisions of Civil Procedure Act, s 98(4)(c) to avoid a costly contested assessment of costs in what is a small estate with limited notional estate. The Court's jurisdiction to make gross sum costs orders is especially useful in small estates. Once the parties proceed to costs assessment they may wish to take advantage of this jurisdiction. The Court has reserved liberty to apply to the parties in relation to the implementation of these orders, in part for this purpose.
2. But this issue may disappear. Given the capping orders that the Court has made. Given the Court has capped the plaintiff's total costs at $100,000 the plaintiff may well be able to establish, without further contests from the administrator, that assessable costs up to this sum have been incurred. If so there may be no need for an assessment and no need for a Civil Procedure Act, s 98(4)(c) order.

The Position of Ms Karen Gray

1. The administrator sought orders paying the sum of $32,600 out of the estate (and from Ms Wilson's legacy) directly to Ms Karen Gray. The evidence in the proceedings supports the conclusion that the plaintiff does owe Ms Gray this debt, which is secured to Ms Gray by way of mortgage over Ms Wilson's current residential property, "Two Creeks Pericoe". Ms Wilson acknowledges the debt to Ms Gray and her case for an order for provision out of the estate relied upon the need to discharge this debt.
2. But Ms Gray is not a party to these proceedings. Unless Ms Gray were to intervene in these proceedings and seek payment the Court would not ordinarily make an order such as this in favour of her as a third party. Ms Gray has rights under her mortgage over Ms Wilson's property. She can exercise them upon legal advice.
3. That being said, Ms Wilson having given evidence that her most substantial immediate financial need is her requirement to pay out Ms Gray, there is no reason why the Court cannot direct the administrator to inform Ms Gray that the legacy is payable and to give Ms Gray information about the payment of the legacy so that Ms Gray is in a position to take steps to take advantage of the fact of the payment. The orders made below provide for such a mechanism.

Conclusions and Orders

1. For the reasons given the Court will make the following orders: 1. Note that for the purposes of these orders the expression "the proceedings" means all four proceedings numbered 2015/155275; 2015/242796; 2016/106321; 2016/124110 that were heard together on 3,4,5 and 6 April 2017, and the expression "the administrator" refers to Manfred Robert Porada who was appointed administrator of the estate of the late Peter Wolfgang Porada on 7 September 2017. 2. Order that prior to the parties taking any steps to satisfy the order for a legacy made on 7 September 2017 or any orders for costs included in the present orders, out of any part of the Mercer Super Trust - South East Fibre Exports Superannuation Plan Fund No GL 21378/21593 ("the Superannuation Fund"), on the basis that it is notional estate under Succession Act, notice must again be given by the administrator to the other claimants to the Superannuation Fund ("the potential competing claimants") of the Court's principal judgment and of these reasons. 3. Subject to all the potential competing claimants to the Superannuation Fund expressly indicating to the Court that they do not contest the making of these orders, order that the costs of the administrator in relation to the conduct of these proceedings be paid out of the estate, and if required, the notional estate on the indemnity basis. 4. Subject to all the potential competing claimants to the Superannuation Fund expressly indicating to the Court they do not contest the making of these orders, order that Ms Wilson's legacy of $75,000 and her costs of the proceedings be paid out of the estate, and if required, the notional estate on the ordinary basis but further subject to order five hereof. 5. Order that Ms Wilson's costs of the proceedings be capped in the sum of $100,000. 6. Order that the administrator may pay the legacy of $75,000 to the solicitors for Ms Wilson seven days after writing to Ms Karen Gray (or her solicitors) informing her (or them) that the payment of the said legacy is shortly to be made. 7. Grant liberty to apply in relation to the administrator reporting to the Court that the competing claimants do not wish to contest these orders and in relation to the implementation of these orders.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 October 2017